Warner Music Group just bucked the trend of streaming revenue growth slowdowns. How?

“Well, I’m glad that we’re suddenly no longer worried about the music industry imploding.”

A jovial text from a prominent music industry investor sent to MBW yesterday afternoon, shortly after Warner Music Group‘s calendar Q2 earnings announcement.

The phrasing was tongue in cheek, the underlying message a little more serious.

After Universal Music Group and Sony both reported streaming revenue growth slowdowns in the three months to the end of June, collywobbles about music’s long-term growth story had crept into Wall Street offices.

Industry observers had begun to worry; industry analysts had started to frown. That Goldman Sachs chart showing 1.2 billion+ music streaming subscribers by 2030 suddenly felt a bit less convincing.

Then Warner Music Group changed the narrative.

WMG’s latest quarterly results, delivered yesterday (August 7) by CEO Robert Kyncl, had one key stat at their heart: Warner’s recorded music streaming revenues (across ad-funded and subscription) climbed 10.2% YoY on a constant currency and like-for-like basis.

The firm’s recorded music subscription streaming revenues, specifically, did even better – up 13.7% YoY on the same basis.

Wall Street’s relief was quickly written all over the stock market: In the wake of WMG’s results yesterday, Warner and Universal Music Group’s share prices rose 1.9% and 6.5%, respectively.

Implosion averted!

Yet with Universal Music Group’s recorded music streaming revenues up 4.1% YoY in calendar Q2, and Sony’s up 5-6% YoY, how did Warner buck the trend to such a dramatic degree with its own double-digit growth in the quarter?

Robert Kyncl and his WMG management team revealed a few key reasons on WMG’s earnings call yesterday (August 7). 

Here are three of them…

1) Hits! Remember them?!

Industry leaders like Robert Kyncl rightly spend a good chunk of their time these days talking about the ‘portfolio effect’ of controlling millions of songs and recordings in a streaming world — a world where listening, across a multitude of global markets, is less concentrated on the biggest US blockbuster hits than ever before and where the so-called “middle class” of independent artists keeps on gaining market share.

That all being true, Warner enjoyed some major-league frontline hits at the top of the charts in calendar Q2.

According to Luminate, Warner labels distributed four of the Top 10 biggest audio streaming songs in the US in the first half of 2024, including the entire top three: Benson Boone’s Beautiful Things, Zach Bryan & Kacey Musgraves’ I Remember Everything, and Teddy Swims’ Lose Control. (All three were released by Warner Records.)

Not only did this boost Warner’s performance in the quarter, WMG’s comparative YoY growth was also helped by a relatively weak hit/blockbuster release slate in the prior-year quarter (calendar Q2 2023).

“So far, in 2024, WMG has more new artists debuting on the Spotify Global Top 10 than any other music company.”

Robert Kyncl, WMG

Said Kyncl on WMG’s Q2 earnings: “The beauty of streaming is that newly released hits have a halo effect on the rest of an artist catalog. As we help artists develop loyal fan bases, each new hit drives an uptick in their catalog. And when we amplify and extend that halo effect, it builds the stickiness that transforms hits into evergreen deep catalog.”

Kyncl noted that “so far, in 2024, WMG has more new artists debuting on the Spotify Global Top 10 than any other music company”.

He gave shout-outs to successful WMG artist projects that had impacted the quarter including Benson Boone, Zach Bryan, Dua Lipa, Twenty One Pilots, Artemas, Teddy Swims, Megan Thee Stallion, Gunna, Charli XCX, Burna Boy, and Myke Towers.

Kyncl also revealed that Warner has new frontline releases coming from Coldplay, David Guetta, Benson Boone, Myke Towers, Cher, Fred Again, and Diljit Dosanjh in the second half of 2024.

Speaking on the earnings call, Warner EVP/CFO, Bryan Castellani, confirmed: “[A] number of new releases and carryover from prior ones that a strong slate gave us momentum in this quarter.”

2) Warner saw strong subscriber growth at its DSP partners in the month  (and, according to Kyncl, didn’t see the same issues that Universal did in Q2 from certain streaming services)

If you want to read all about why MBW believes that Spotify grew its ‘market share’ of Universal Music Group’s revenues in calendar Q2, try this in-depth analysis.

The short version: UMG execs said last month that, while they’d been pleased with Spotify and YouTube Music‘s growth in calendar Q2, they’d been let down by a “slowdown in new subscriber additions” at other “large streaming partners”. That literally has to mean Apple Music and Amazon Music. 

Warner Music Group doesn’t appear to have observed the same trend, or at least not to the same degree.

Said Kyncl yesterday: “We have always cautioned the financial community to make sure that you don’t look to just one company, Spotify namely, as the proxy for the entire industry because it’s much more diversified. We’re not seeing any change in our revenue mix [between streaming partners].”

Bryan Castellani then reiterated: “We continue to see pretty consistent growth across our handful of top DSPs, led by subscriber growth and that rising tide, but [also] price to a lesser extent.”

“I note that the investor attention has recently been focused on the dynamics between the labels and the DSPs with some speculating that were adversaries playing a zero-sum game. That’s simply not the case… [there is] plenty of headroom for subscriber growth in both established and emerging markets across multiple partners.”

Robert Kyncl, WMG

In calendar Q2 specifically, said Castellani, Warner’s performance was “underpinned by subs growth, which, again, we continue to see pretty consistent across the top DSPs”.

In addition, said the CFO, Warner’s calendar Q2 results also enjoyed a YoY benefit from Spotify’s landmark price rise in July last year.

However, Castellani confirmed that WMG no longer sees a YoY benefit from YouTube Music’s 2023 price rise.

Interestingly, Robert Kyncl took a moment to tell the assembled analysts listening to WMG’s earnings call: “I note that the investor attention has recently been focused on the dynamics between the labels and the DSPs with some speculating that were adversaries playing a zero-sum game. That’s simply not the case. We’re actively engaged with our partners around ways to drive growth for all of us.”

Added Kyncl: “Streaming dynamics remain healthy with plenty of headroom for subscriber growth in both established and emerging markets across multiple partners.”

3) Unlike Universal, Warner didn’t get clobbered by Meta’s video shocker in calendar Q2… but it will next quarter.

Speaking on yesterday’s earnings call, Warner Music Group EVP/CFO, Bryan Castellani, slipped out quite the revelation in his synopsis of Warner’s quarterly fiscal performance.

Castellani warned that in fiscal Q4 (calendar Q3), Warner will see a negative impact of approximately $10 million per quarter going forward — across recorded music and publishing — from Meta’s decision to no longer license (and make available on its platforms) premium music videos.

That’s a $40 million nosedive across the year for WMG vs. the prior year.

Because this impact won’t hit WMG until its next quarter (calendar Q3), it obviously didn’t affect the firm’s streaming (namely: ad-funded streaming) figures in calendar Q2.

“As we approach the 2-year anniversary of our existing Meta deal, we want to flag that they will no longer be making available premium music videos to their users. This change to Meta’s offering will result in a revenue impact of approximately $10 million per quarter across both Recorded Music and Music Publishing.”

Bryan Castellani, Warner Music Group

That wasn’t the case for Universal: On UMG’s calendar Q2 earnings call last month, the firm explained that Meta’s abandonment of premium music videos was a significant driver in UMG’s ad-funded streaming revenues declining 3.9% YoY in the quarter, which in turn dragged down UMG’s overall streaming growth story.

A reminder: according to Music & Copyright, Warner Music Group’s recorded music division had a 16.8% global market share of digital music industry revenues in 2023. Universal was nearly double that size, at 32.4%.

It’s possibly a fair assumption, therefore, that the amount of money Meta used to pay Universal for premium music videos is a significant chunk larger than the $40 million annual payment that Bryan Castellani implied the Facebook company has been paying WMG for premium vids over the past year.

On the subject of Meta, UMG’s EVP/CFO, Boyd Muir, told Universal’s investors last month: “Meta had previously offered premium music videos on Facebook. This product offering was less popular with Facebook’s user base than other music products. And as a result, Meta is no longer licensing premium music videos from us as of May this year.”

Muir added: “Meta is now focusing instead on other areas involving music content, and we are working together to expand these areas as part of a multifaceted renewal.”Music Business Worldwide